What Drives the Most Innovative Companies?

Innovation challenges organizations of all types and sizes across all industries. As part of its consortium research study, APQC analyzed how companies are innovating in the following areas:

• Products/services;



• Core processes and operations;



• Business model development, including business relationships such as joint ventures and partnerships with suppliers, customers or competitors;



• Innovation enablers, or the culture, tools and structures that create an environment where innovation thrives.

In its 2006 study, “Innovation: Putting Ideas into Action,” APQC found Bausch & Lomb, IBM, Kennametal Inc., Mayo Clinic, Procter & Gamble and The Clorox Company to be leaders in innovation. Even though they operate in very different industries, these companies articulate and commit to an innovation strategy. They balance their innovation portfolios, and they extend innovation beyond their own boundaries. In this article, we distill lessons from last year’s survey that can be applied to pharmaceutical manufacturing, and invite companies to take part in our 2007 survey (see Collect Your Own Measures at No Cost, below), results of which will be interpreted in Pharmaceutical Manufacturing and on our Web site later this year.

Strategy and Commitment

For innovation to be a long-term strategy, it must be linked with the organization’s overall strategy, and visible commitments of money and resources must be made. Leaders in innovation provide financial resources and clear goals and objectives. At these organizations, innovation is clearly stated as a corporate value.

Even if they may not have a discrete budget for it, the best innovators provide adequate funding for innovation. On average, best-practice organizations allocate more resources than others, averaging 7.7 out of 10 for increasing the resources available for innovation, compared to 6.5 for other respondents. Leaders have clearly defined goals, and map the development of their innovation strategies to a greater extent than do the other organizations participating in the research. Figure 1 (below) illustrates the strategic approaches taken by the leading organizations.

Figure 1. Innovation Strategy Development. Source: APQC, Innovation: Putting Ideas into Action. Click here for larger image.

In order to keep innovations aligned with overall business strategy, it is essential to determine the strategic fit. Key questions are:

• Is this truly the right market?
• What will it take to succeed?
• How can we advance in that market?
• Can we succeed?

Bausch & Lomb has created development committees in its major business categories to define product-specific innovation strategies. Each development committee is responsible for evaluating business opportunities, approving business cases and evaluating benefits. Development committees then convert business strategy to product strategy and product strategy to project strategy. These committees also are responsible for funding and resource allocation in support of innovation.

IBM believes that the mastery of innovation is vital to an organization’s long-term well-being; therefore, the company focuses on innovation across three interconnected dimensions: product/offerings, process and business model innovation. IBM provides resources and funding for all three kinds of innovation. IBM’s innovation framework includes:

• New ways to reach out and meet the needs of customers through products and services, markets, audiences, channels and paths to delivery.



• Business/enterprise models, including enterprise realignment, strategic redefinition and industry ecosystem and networks.



• Operations, driven by the need to change outcomes significantly or the need to support new products, services, markets and channels. It takes into account differentiated processes, partners and teams.



• Sustaining enablers that create an environment where innovation thrives. These include idea generation, creating a climate for creativity, organizational structure and incubation, technologies and tools, and collaboration.

Balanced Portfolio

Successful innovators must also excel at two fundamentally different types of innovation; one type bolsters its position in a core business, while the other creates new businesses. However, the tools, metrics, processes and interactions with management can be very different for the two activities.

Innovation can be incremental or radical, but companies should also consider the impact of their innovation: will it sustain an established improvement path or disrupt it?

Figure 2 (below) shows how innovation leaders spend on innovation. Interestingly enough, all of the most innovative organizations invest in breakthrough innovations, while only 38% of the others do. Leaders and laggards were also divided on their policies regarding expenditures for new technology research and evaluation, competitive intelligence and customer research.

Figure 2. Categories of Innovation Expenditures: What are the major categories of your organization’s spending on innovation? Source: APQC, Innovation: Putting Ideas into Action. Click here for larger image.